Lancashire County Cricket Club 2019 Accounts

Introduction

I've never followed Lancashire very closely but I have the impression they are an underachieving county. One county championship plus one shared since the end of World War II is a meagre return, given Lancashire's large population with an interest in cricket (especially those with a south Asian heritage) and the famously competitive and high standard of cricket played in the Lancashire leagues .

Similarly treasurers and, more recently, chief financial officers of the other seventeen counties spend their winters looking at empty stands and car parks thinking, "if only there was some way to use all these assets when there's no cricket."  But at Lancashire the other Old Trafford just across the road is an obvious source of off season revenue.  As with playing resources Lancashire have seemed unable to take advantage of their financial leverage, and, with the ground growing increasingly tatty, test match crowds and county membership dwindled.

Planning difficulties meant Lancashire came late to county cricket's redevelopment years but when it did get started it embarked on a more radical rebuild than any first class county, with the exception of Hampshire.  The ground was turned around, odd looking stands cum exhibition areas sprung up and there's a hotel to boot.  All this cost money of course and at 31 December 2018 Lancashire's liabilities less current assets were £26m, making up about a quarter of the total debt of county cricket clubs (Hampshire excluded). 

The stakes were particularly high for Lancashire because of the £26m of debt, £23m was due for repayment in the five years to the end of 2023.  Lancashire were at the bottom of the prestigious Bentley Forbes Consulting rankings.  

But, with the new hotel complete,  2019 would be a crucial year, with a home ashes series and a world cup. Could the county generate sufficient revenue to make a significant dent in the debt pile?  The evidence from other counties was mixed, at best.  Surrey and, on a smaller scale, Nottinghamshire certainly made a success of expanding their grounds and moving into ancillary activities, but, Warwickshire, Yorkshire, Glamorgan, Hampshire and Durham have all had problems repaying the money they have borrowed.

2019 Results

The good news is that 2019 certainly was a bonanza year for Lancashire.  Yes, it was always going to be a good year, but a post all items profit of just over £5m is certainly impressive.  Surrey are stating profits over £6m but, in prior periods, Surrey's profits had always been a multiple of the second most profitable county so Lancashire have really closed the gap.  Warwickshire had a profitable 2019 but only made £1.6m an indication Lancashire has pulled away from the stragglers among the test match counties.

Despite the healthy profit, net debt stayed, pretty much, constant over 2019 but this is rather misleading.  A large number of tickets for the 2019 ashes were sold in the previous year and this enabled £5m of debt to be paid down in the year to 31 December 2018. 

Just as importantly Lancashire has been able to restructure its debt.  A new loan agreement, signed in 2019, with Metro Bank, reduced the amount to be repaid in the next five years to £11m, only half the amount repayable in five years at the end of 2018.  This rescheduling was particularly timely given the impact of the coronavirus.

Coronavirus 

Covid 19 is the wicked fairy at the christening.  It's really too early say what impact it will have on cricket finances.  My initial guess was that all the counties are probably going to get through a one year shut down without going bust or into administration.  Now Lancashire have rescheduled their debt repayments I'd certainly expect them to make it to 2021.  However, it's not clear to me that everything returns to normal in 9 months to a year from now and I've no idea what the future holds.

Things to worry about

It wouldn't be a sideonview blogspot post without a few pessimistic pronouncements.  And even in 2019 there were some indications not everything is rosy at Lancashire, a couple of specific points to keep an eye on.

1.  Rising executive salaries.

Companies have to disclose in their annual accounts the amounts paid to Key Management Personnel.  In 2019 Lancashire's payments to KMP were £1,448,110 , a 56% increase on 2018's payments which, in turn, was a 20% increase on the amount paid in 2017.    If these amounts were one off payments then it might be OK, but if they mark a step up in remuneration of senior management it will be a heavy load for the county to carry in years when there isn't an ashes or a world cup.

2.  Spend on fixed assets

Lancashire is now, effectively, a hotel, hosting and conferencing business with a county cricket club attached.  Looking at the financial accounts of pub, restaurant and hotel companies it's often the case cash flow is less impressive than profitability.  What happens is that the cost of fixed assets (e.g. the rooms in a hotel) is measured by depreciation, a historical accounting basis, which is often lower than the actual cash expenditure needed to replace, refurbish and generally keep the property up to scratch.  There's a sign Lancashire already have this issue, in 2019 the cash spend on fixed assets was £0.9m higher than the depreciation (net of grants released) in the accounts.  Again, if this was a 2019 one off there's probably not a big problem but if the disparity persists it will undermine Lancashire's financial health.

Conclusion

Lancashire certainly seems to have the potential to join Surrey as a consistently profitable enterprise.  But even assuming coronavirus can be put behind us there is a challenge for the club to ensure it's new found financial strength isn't dissipated on payments to executives and the cash drain of keeping its hospitality business up to scratch.